Court outlines what constitutes a business partnership in law

The High Court has outlined what constitutes a business partnership in law following a dispute between a couple who ran a business together.

Sam Lyon, Head of Corporate & Commercial, reports on this recent case.

The case involved Ms Burnett and Mr Barker.

Barker had set up a business as a sole trader offering fire safety services at events. Burnett was working for a company that dealt with administration, invoicing and accountancy services.

In 2002 they began a relationship, and in 2006 they decided to run a fire simulator business together through a company.

Burnett would also help Barker at company events.

In 2008, she started providing administration services and from 2014 she devoted more time to managing the business.

The couple’s relationship broke down and Barker claimed that they had carried on the business as a partnership, which was implied by their conduct in 2008.

The court ruled against her. It stated that a partnership was defined in the Partnership Act 1890 as a business carried on by two or more persons in common with a view to profit.

Fundamentally, partnership was a contractual relationship, or a relationship resulting from a contract, whether express or implied, which was a continuing personal as well as commercial relationship.

Like any other contract, the terms had to be sufficiently certain so that where it was found that alleged partners had either reached no binding agreement, or specifically agreed not to enter into a partnership, or one of them had expressly declined to enter into a partnership agreement, the existence of a partnership was unlikely to be inferred from their conduct.

In this case, there had been no express agreement to enter into a partnership. There was nothing in writing and there was no oral agreement. It was significant that there was no partnership agreement.

The likelihood was that, at best, Burnett had made an assumption, which was not shared with Barker, that the business would be theirs, most likely reflecting her hopes and aspirations for the future, but not being reflective of a partnership agreement. 

There were no normal incidents of partnership: no mutual agency; no contribution to capital; no liability for losses; and no holding out as a partner. Although Burnett had made a substantial contribution to the running of the business, there was no evidence that she was ever intended to be a partner. They were domestic partners whose business interests coincided.

They were sufficiently savvy about business arrangements and were able to take advice from their accountants from time to time. However, those business arrangements developed subsequently, the court could not be satisfied that in 2008 they had intended to enter into partnership.

If you would like more information about the issues raised in this article or any aspect of company law, please contact Sam on 01228 516634 or click here to send him an email.